Friday, August 13, 2010

What passes as cost-benefit analysis of the NBN

As I have outlined before this kind of stuff is, well, weak.

Here's the latest. It'll give you an idea of the quality of the analysis they are bringing to the task at the moment.

It came from Conroy in what was supposed to be 10 days into the caretaker period:


Australia could save between $1.4 billion and $1.9 billion a year if 10 per cent of the workforce teleworked half the time, according to a new report by Access Economics.

Telework is work conducted outside designated places of business, and the focus of the report was on working from home.

Communications Minister Senator Stephen Conroy said the report, The Impact of Teleworking Under the NBN, highlighted the advantages of delivering affordable, high-speed broadband to all Australians.

Innovation Minister Senator Kim Carr said: “Teleworking offers many advantages. It can deliver more flexibility in the workplace, more freedom to balance work and family, and more job opportunities for people living in regional and rural Australia....

Now read the report they are trumpeting. Ask whether it has even begun to consider the costs as well as the benefits of a switch to telework, or whether an NBN would make much difference to Telework.

Then read Joshua Gans, below the fold.

Oh, and read this, from The Onion: Waste Tax Dollars Only On Stuff That's Awesome

Telework - Access Economics Final Report

Now Gans:

That cost-benefit analysis - Joshua Gans

I thought it was time to pick up a theme on the National Broadband Network that has been going around for sometime; the lack of a clear cost-benefit analysis.

First, it is never going to happen. Put simply, the political rationale for the NBN is a combination of two things. First, that a big push on broadband was not going to happen without a big push from Government given the virtual monopoly held by Telstra and the ineffectiveness of regulation to manage that.

Second, there is the Yes Prime Minister Trident/Hollowmen/GFC Big Ticket/Shiny things rationale that is wonderfully captured by this piece in The Onion. You only want a comprehensive cost-benefit analysis if it is going to change your decision. The political rationale is so strong that that is not going to happen and so there is no point to attempts at quantification.

Second, even without a choice motive, there is a downside to the lack of clear analysis: that we can’t optimise the NBN and will inevitably end up causing some waste and inefficiency. I have already mentioned many times that by placing the policy sales pitch on broadband, and worse than that, on broadband speed, we leave that as the sole metric for performance. However, the NBN can potentially yield benefits of lower prices (virtually nothing in fact) for telecommunications and also a revolution in government services if basic broadband is freely available. The problem is that the Government is not being held to account for realising those benefits and this is very troublesome. That said, once the stuff is in the ground …

Third, and this is more worrying than the lack of a cost-benefit analysis, there has been no consideration whatsoever given to issues of market design. If we were serious about this, the NBN would be regarded as a platform that would allow telecommunications markets to evolve. Instead, it is regarded as a thing rather than an institution that sets the rules of the game. That is why we end up with fibre all over the place. That is why we end up with engineering criterion.

On that latter point, and with due respect to my colleague Rod Tucker, it may well be true that only fibre can deliver the fastest broadband speeds. But time and time again we find that people are willing to sacrifice engineering metrics for other things. The evidence is compelling that consumers will sacrifice speed for wires just as they sacrificed CPU power for portability (something IT people thought would never happen). For this reason, we need to be cautious in how we let technological choices be made and to provide rules to allow it to evolve flexibly. The problem is that that does not square with the one-eyed sales pitch on the NBN.

Finally, one thing we can’t quantify well in cost-benefit analyses is ‘future proofness.’ That provides a reason to push forward with the NBN but at the same time is the reason to ensure it is built in a flexible manner. You can’t simultaneously be claiming you are insuring Australia for the future without actually taking out insurance on the details.

Oh and by the way, there is no cost-benefit analysis for the Coalition’s plan. To do that would require a consideration of opportunity cost. So if the choice is between ‘do nothing’ and ‘do the NBN,’ as any first year economics student will tell you, you can’t justify ‘do nothing’ without first doing a cost-benefit analysis on the NBN.

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